The Bank of Queensland Limited (ASX: BOQ) share price has dived around 10% over the last month. With the ASX bank share going through this rapid decline, investors may be wondering whether this is an opportunity.
Last year, the prospect of higher interest rates was viewed as a real positive for ASX bank shares because of how they could pass on interest rate rises to borrowers quicker than savers, and increasing earnings banks can make on transaction accounts that pay 0% interest.
Many banks reported an increase in their net interest margin (NIM) in 2022 thanks to the higher interest rates. However, things aren't turning out as well as hoped for lenders with intense competition in the sector. As we can see on the graph below, Bank of Queensland shares have suffered over the last year.
Fund manager Contact Asset Management has recently commented on the regional bank and whether it's good value. The investment team started out by saying that the recent FY23 half-year result was "soft". Hence, let's have a quick look at the highlights from the report.
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Earnings recap
Bank of Queensland said that its cash earnings were $256 million, a reduction of 4% from the first half of FY22.
Cash profit dropped even though the NIM grew by 4 basis points from the second half of FY22. It suffered a 7% rise in operating expenses to $495 million, which reflected "higher inflation and other costs including higher technology expenses and costs for proactive customer contact, technology and cyber security."
Bank of Queensland shares may have been partly affected by the loan impairment expense of $34 million compared to a credit of $15 million in the first half of FY22. Bank of Queensland said this was driven by an increase in collective provisions reflecting "continued uncertainty around future economic impacts of inflation and interest rate pressures as well as recently observed and forecast declines in house prices."
There was a 9% cut to the interim dividend per share to 20 cents, so shareholders have seen a reduction of their share value and a smaller payout.
In the bank's outlook statement, it said that it expects to see "heightened mortgage competition continuing as well as escalated deposit competition due to term funding facility refinancing", with interim margin compression anticipated.
It also noted that it's looking to "align the structure" of its organisation to match its customer segments and business model, reduce duplication and leverage the automation of processes.
Fund manager views on Bank of Queensland shares
Contact Asset Management noted the "intensifying competition" in the banking industry for both mortgages and deposits, putting pressure on the NIM.
Bank of Queensland shares are only a small position in the Contact fund, but it intends to be patient "for now given the discount to book value that the shares are currently trading at."
In other words, the market capitalisation is at a lower price than Bank of Queensland's net assets.
Contact also said that ME Bank acquisition is "integrating well and should deliver on synergies." The fund manager also pointed out that Bank of Queensland's boss, Patrick Allaway is "eager to reduce the cost base." As a concluding, optimistic thought, Contact explained:
We expect to see any sign of good news result in a material re-rating of the stock.
